The Notice of Assignment is probably the single most important document for a Factor. Understanding what needs to be included in the Notice of Assignment, how to send it, and who to send it to can mean the difference between getting paid or not. Recently, some of our clients have had us review their Notices of Assignment and we found that many of these Notices were deficient and could hurt the Factor’s ability to collect from an Account Debtor. The article focuses on what information needs to be included in the Notice, who the Notice should be sent to, and how the Notice should be delivered.

What needs to be included in the Notice of Assignment?

To be effective, there is certain information that must be included in the Notice of Assignment. The Uniform Commercial Code (“UCC”) requires that the notice must:

Notify the Account Debtor that the amount due or to become due has been assigned; • Notify the Account Debtor that payment is to be made to the Factor; • Reasonably identify the rights assigned; and• Be signed by the Factor or its client.

The Notice of Assignment should also include a remittance address so the Account Debtor is informed how and in what manner the Factor should be paid. Here is an example:

We are pleased to advise you that [Factor] has entered into a financial arrangement with [Client] under which their present and future Accounts and Accounts Receivable have been assigned to us. To facilitate this arrangement, all future payments should be made payable to [Factor] and send to the following address:

Please make the appropriate changes in your accounts payable system to reflect this new information. This notice may only be revoked by written notice signed by an officer of [Factor]. If you make payment to anyone other than [Factor], you will not be relieved of your obligation to pay [Factor] pursuant to Article 9 of the Uniform Commercial Code.

Who should the Notice of Assignment be sent to?

Notices of Assignment should not be sent directly to individuals, regardless of your understanding of who is in charge of paying the invoices – you may be wrong. Sending the Notice to a specific individual may lead to issues relating to the authority of that individual to receive documents on behalf of the Account Debtor. For example, recently one of our clients delivered a Notice of Assignment directly to an individual who described herself as a bookkeeper for the company. The Factor funded an invoice for its Client. Unfortunately, the Account Debtor paid the Client directly and claimed that it never received the Notice of Assignment. The Factor was forced to file a lawsuit and during the course of the litigation, the Factor learned that the individual who received the Notice of Assignment was not a bookkeeper, was fired four days after receiving the Notice of Assignment, and the Account Debtor claimed it had no record of the Notice. The Factor may still prevail on its argument that the Notice of Assignment was received by the Account Debtor, but what should have been a non-issue has now required the Factor to engage in time-consuming and expensive litigation. Rather, the Notice should be addressed to the “Accounting/Accounts Payable Department.”

How should the Notice of Assignment be delivered?

The crucial issue for the enforceability of a Notice of Assignment is proof of receipt by the Account Debtor, not proof of delivery. Therefore, it is good business practice to send the Notice of Assignment either certified mail or other method that provides for proof of delivery.

Many of our clients have asked about whether it is proper to deliver the Notice of Assignment via e-mail asking the Account Debtor to confirm receipt or with “read receipts” turned on. Sending Notices of Assignment in this manner is enforceable, but we would not recommend it as a general business practice. Sending the Notice in this manner requires delivering the Notice to a specific individual, which we have discussed above can be problematic. Additionally, sometimes officers and directors of companies have assistants or other personnel manage their e-mail accounts, raising the possibility that the individual who was sent the Notice never actually saw it. This added efficiency at the beginning of the relationship may come back to hurt you when you try to enforce. In our opinion, it is simply not worth the risk.

Last, there is no requirement that the Notice be signed by the Account Debtor and returned to the Factor. Often, we see our client’s Notice include a “confirmation of receipt” line for the Account Debtor to sign and return. Sometimes, the Factor will have proof of delivery to the Account Debtor but the Notice was not signed and returned by the Account Debtor. This adds unnecessary ambiguity as to whether the Notice was actually received by the Account Debtor and it is simply unnecessary. Therefore, we instruct our clients not to include such requests for proof of receipt.

The Notice of Assignment protects the Factor in the event a payment is sent to the Client – or other third parties – instead of to the Factor. Sending a Notice of Assignment that includes the proper information and is delivered in the proper way can often be the difference between a Factor getting paid or not.

Bruce Loren and Allen Heffner of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale. For over 25 years, Mr. Loren has focused his practice on construction law and factoring law. Mr. Loren has achieved the title of “Certified in Construction Law” by the Florida Bar. The Firm represents factoring companies in a wide range of industries, including construction, regarding all aspects of litigation and dispute resolution. Mr. Loren and Mr. Heffner can be reached at bloren@lorenkeanlaw.com or aheffner@lorenkeanlaw.com or 561-615-5701.